Pebblebrook Hotel Trust (PEB) 2014 Q1 法說會逐字稿

Good day, everyone, and welcome to the Pebblebrook Hotel Trust first-quarter earnings call. Today's conference is being recorded. At this time I would like to turn the conference over to Raymond Martz, Chief Financial Officer. Please go ahead, Sir.

Thank you, Lisa. Good morning, everyone. Welcome to our first-quarter 2014 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. Before we start, let me remind everyone that many of our comments today are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our 10K for 2013 and our other SEC filings and could cause future results to differ materially from those expressed in or implied by our comments.

Forward-looking statements that are made today are only effective only as of today, April 25, 2014, and we undertake no duty to update them later. You can find our SEC reports and our earnings release which contain reconciliations of non-GAAP financial measures we use on our website at pebblebrookhotels.com.

Okay. So we are pleased to report that 2014 is off to a great start for us and the industry. Our first-quarter performance was better than we expected on all operating metrics. Same-property RevPAR growth for the total portfolio climbed 8.5%, despite the significant weather-related travel disruption along the East Coast throughout the quarter.

RevPAR growth exceeded our outlook of 5.5% to 6.5%, largely due to the strong performance from our West Coast hotels which generated RevPAR growth of 13.1%. This strength helped to offset weaker performance from our hotels in the DC area which faced difficult comparisons due to the presidential inauguration in Q1 2013, as well as the continued drag from reduced government and related travel demand.

And as expected, we also experienced softness from New York, particularly in March which has more than offset the minimal benefit the city experienced from the Super Bowl in early February. As was indicated since 2012, we believe that New York will continue to grow ADR in the face of -- would struggle to grow ADR in the face of significant supply growth which fortunately so far has been absorbed by primarily strong growth in international inbound travel. However, occupancies in New York suffered in Q1 due to the loss of between 3000 and 4000 Sandy-induced FEMA occupied rooms per night in last year's first four months.

Our portfolio's RevPAR growth rate has now exceeded the industry's quarterly RevPAR growth in 10 of the last 11 quarters dating back to Q3 2011. For our portfolio on a monthly basis, January RevPAR increased 8.8%; February was up 10.4%; and March climbed 6.9% benefiting from the holiday shift at Easter into April this year.

Our 8.5% RevPAR gain in the quarter was driven by a 7% increase in ADR while occupancy continues to grow, improving 1.4% to 80.5%.

Overall transient revenue, which makes up about 75% of the demand for our total portfolio, was up a very strong 11.4% compared to the prior year with ADR up a healthy 7.6%. Group revenues increase 4.4% with ADR up 3.4%, which is also encouraging.

As a reminder, our Q1 RevPAR and hotel EBITDA results or same-store for our ownership period include all the hotels we owned as of March 31 and our hotel numbers don't include hotels that were under renovation -- exclude hotels that were under renovation.

RevPAR growth in the quarter was led by Hotel Zetta, Sir Francis Drake, Sofitel Philadelphia, Monaco Seattle, and the Argonaut in San Francisco.

Food and beverage revenues for the portfolio decreased 0.5% compared to last year. Food and beverage revenues within the portfolio were impacted by our restaurant and Mondrian LA transitioning to a new third-party restaurant operator who leases the restaurant space. This new restaurant, Herringbone, opened on January 16 and it's doing great.

At W Boston, as previously discussed with you, we worked closely with Starwood to close a significant money-losing restaurant at the hotel at the end of last year and have moved the reconcepted and reconstructed menu for three meals a day into the lobby lounge.

And at Palomar San Francisco, we commenced a major renovation and reconcepting of our Fifth Floor restaurant and meeting space in January. The new bar restaurant called, Dirty Habit, is expected to open on the 1st of May and will have a more bar-centric casual focus that will take advantage of the reprogrammed space with a very edgy design that also features new outdoor facilities, which is unique offering in the downtown market.

Although our food and beverage revenues declined in the quarter due to these changes, our food and beverage departmental profit generated by the portfolio improved by $1.2 million during the quarter, reflecting the benefit of our efforts.

Strong RevPAR growth of 8.5% in the quarter, coupled with significant margin expansion, drove a very healthy 19.9% increase in same-property EBITDA over the prior-year period. Room revenues increased 9.9%, aided by additional same-property guestrooms and additional days open in Q1 at Hotel Zetta, which opened mid-quarter last year.

Total same-property revenues increased 7.6%, and with expense growth limit of 4.1%, our same-property EBITDA margin climbed to a very robust 251 basis points. While 4.1% expense growth may not sound that terrific, consider that we had 2.7% more occupied rooms during the quarter, energy costs increased 14.8% due to the unusually cold winter we experienced throughout the portfolio, and property taxes grew 8.8%.

50% of the property tax increase was the result of automatic reassessments related to the acquisition of the Radisson Fisherman's Wharf and the Redbury. Without those two properties, property tax increases were limited to a 3.5% increase in the quarter and our EBITDA margin would have been up another 25 basis points.

The leading hotel EBITDA growth contributors in the first quarter were Sir Francis Drake, Hotel Zetta, Westin San Diego Gaslamp Quarter, and the Argonaut San Francisco.

Moving down the income statement, let's now turn to our corporate G&A line. As a result of a better-than-expected growth in our hotel EBITDA and hotel EBITDA margins during 2013, we increased incentive compensation expense associated with the long-term performance shares for our management team and employees. This resulted in a $650,000 increase in the quarter and an additional $350,000 expense for the rest of the year, both of which were reflected in a non-cash corporate G&A line item of our full-year forecast.

As a result of the stronger operating performance and a greater number of properties this year versus last, we generated adjusted EBITDA of $29.5 million for the quarter; that's an increase of $7.6 million, or 34% ahead of last year's first-quarter results. Our adjusted FFO climbed to $16.9 million from $12 million in the same period last year, resulting in an AFFO per-share of $0.26; that's a 33.5% increase compared to Q1 last year.

At the end of Q1, we had cash, cash equivalents, and restricted cash of $58.7 million plus an additional $13.5 million in unconsolidated cash, cash equivalents, and restricted cash from our 49% pro rata interest in the Manhattan Collection.

Our balance sheet remains very healthy. At the end of our first-quarter our net debt to EBITDA ratio was at 4.2 times; our debt to total assets was a low 32%; and our fixed charges remain well covered at 2.4 times. Our $200 million unsecured credit facility is fully available with nothing outstanding, and we have no debt maturities until 2016.

I would now like to turn the call over to John to provide more insight on the recently completed quarter as well as an update on our outlook for 2014. John?

Thanks, Ray. As Ray just said, 2014 is off to another strong start for both the lodging industry and for Pebblebrook. Perhaps our song last quarter by the Beatles, Here Comes the Sun, presaged this good start. When we look at the first quarter's overall industry trends, performance continued to be driven by strength in both business transient and leisure travel. And probably for the first time since the recovery began back in 2010, group has joined the party.

With group across the industry picking up in Q1, total US demand growth has accelerated back to north of 3%, a very strong level historically. In fact, we began to see this acceleration in November with overall industry demand up 2.8%, followed by more significant increases of 3.6% in December, 3.3% in January, 4.2% in February, and 3.8% in March. The 3.8% growth of demand in the first quarter occurred despite significant travel-related disruptions due to weather, though it benefited from the Easter and Passover shift to April this year.

We have to go all the way back to the first quarter of 2012 to find quarterly demand growth at this high a level. With the trend now five months long, we are cautiously optimistic that this higher level of demand growth may be representative of an acceleration in travel due to greater confidence in the economic and political environments.

We're not yet ready to increase our industry demand, occupancy, and RevPAR outlooks for the year, but we're definitely walking on sunshine as our song this quarter suggests. With demand in the US increasing a strong 3.8% in the quarter and with supply growth remaining very low at just 0.9%, occupancy grew 2.9%. This provided a foundation for ADR to grow a pretty healthy 3.8% resulting in industry RevPAR growth of 6.8%. That's the 16th straight quarterly increase in industry RevPAR of 5% or more.

We're also encouraged that it's the first quarterly increase in RevPAR over 6% since the first quarter of last year. According to Smith Travel, in the first quarter group demand growth actually outpaced transient demand growth, which seems to be consistent with be very positive comments from the large brands who have a much better view of group trends than we do. Group represents just 25% of our overall customer mix, though, again, a word of caution, March group definitely benefited from the holiday shift.

At Pebblebrook we had another terrific quarter. Our RevPAR growth of 8.5% outpaced the US industry by 165 basis points and was driven by a 7% increase in rate. We achieved this outperformance despite challenges with significant travel-related disruptions and a difficult comparison in DC to last year. As has been the case in prior quarters, positive performance was widespread throughout the portfolio, though as Ray indicated, the West Coast in general continued to way outperform the East Coast.

12 top properties through RevPAR over 10%, with nine of them on the West Coast. And while our portfolio properties performed very well, the CBD markets in which our hotels are located were also generally pretty strong, particularly the West Coast cities.

RevPAR in San Francisco led the way, up a whopping 17.5%. Downtown Seattle climbed a very impressive 16.6%, aided by the Seahawks' march to their Super Bowl championship. Downtown Portland rose a very robust 16.2%, and the city did it without a Super Bowl team. Hollywood Beverly Hills rose 11.8%. Downtown San Diego grew RevPAR a strong 11.2%. Buckhead was up 10.3%. Philadelphia's center city grew RevPAR 9.4%, and RevPAR in Santa Monica increased 8.7%.

Again, these are industry market numbers, not ours, though our performed hotels performed similarly.

On the weak side, RevPAR in downtown Boston was up 5.7%. Downtown Miami was up 4%. Manhattan declined 0.5%. Minneapolis was down 3.9%. And Washington DC's CBD dropped 4.3%, again, up against a difficult comp to last year due to the presidential inauguration.

With over 60% of our portfolio EBITDA from properties on the West Coast, RevPAR growth of 13.1% from our hotels out West overwhelmed the 1.9% RevPAR growth from our East Coast properties. This general outperformance in West Coast markets should not only continue for the rest of the year, but it should continue for at least the next several years, at least as we see it today.

Now, let me turn to a quick update on our outlook for 2014. We continue to expect 2014 to be a great year for both the industry and Pebblebrook. For the industry, while the quarter was better than expected, we are refraining from increasing our RevPAR growth range, at least for another quarter. So our forecast for the industry remains 5% to 6% for the year.

And I'd like to make one comment about the second quarter. While a holiday shift of Easter/Passover has likely added significantly to March's RevPAR growth which should reduce April's performance by a similar amount. For our portfolio we are also maintaining our RevPAR outlook for the year, despite are better than expected first-quarter performance. We are, however, increasing our forecasted hotel EBITDA by $1 million at both the low and high ends of our range due to the first quarter's $2.1 million beat of our bottom-line outlook.

Our forecast for our same-property RevPAR growth remains 150 basis points higher than our industry range, but we continue to forecast 6.5% to 7.5% growth for our portfolio. The second quarter and remainder of the year continued to look healthy based on current trends and business on the books, so for Q2 we're forecasting RevPAR to increase by 7% to 8%, which takes into account the negative impact from the holiday shift for April. That's RevPAR growth for our portfolio of 7% to 8%.

Our same-property hotel EBITDA range for Q2 is $54.2 million to $56.2 million with same property EBITDA increasing by 75 to 125 basis points.

For our full-year outlook for FFO and adjusted EBITDA we are also maintaining the prior ranges released just two months ago in February. All other assumptions for our outlook remain unchanged, except as previously mentioned, the range for hotel EBITDA increases by $1 million and are non-cash G&A expense for the year also increases by $1 million.

Economic trends, travel trends, and business on our books all remain supportive of our forecast of a strong growth for 2014. As of the end of March, total group and transient revenue on the books for the last three quarters of this year was up 9.3% over the same time last year with ADR up 7.4%. Group room nights were up 3.1%, with group ADR up a healthy 5.1% for a total of 8.4% for group revenue.

Transient room nights on the books for quarters two through four were up 0.3%, with transient rate up a strong 9.8% and total transient revenues on the books of 10.1%.

To conclude, we continue to expect 2014 to be another terrific year for the lodging industry, and just like in prior years, an even better year for Pebblebrook. Underlying fundamentals remain very healthy. We've got tremendous opportunity in the existing portfolio to recapture significant RevPAR lost in prior years and to continue to significantly improve margins through the implementation of best practices and lots of focus and hard work by our operators and our team. So that completes our prepared remarks. Operator, we'd be happy to take questions now.

(Operator Instructions) Jeff Donnelly, Wells Fargo.

Good morning, guys. Jon, just because you were mentioning that there may be a few green shoots on group demand in the market, I know that you guys have generally avoided, I would say, big box hotels in this iteration, but I'm curious, does that lead you to have stronger conviction around group trends maybe being an outsized contributor to industry revenue growth going forward?

Sure. No doubt. Clearly to the extent that group demand picks up and there's more group on the books for the big boxes and the medium-sized boxes, it gives those properties greater base and often times a willingness to get more aggressive in terms of pricing higher for transient, as well as group. So, I think it is and has been the missing piece for the industry, which usually comes later in the cycle, and hopefully this is the beginning of that trend where it does pick up and makes a much more meaningful contribution to the overall industry growth and gives the industry greater confidence to push pricing.

Are there any signs, beyond the obvious data reports that you see on group booking pace from the brands, that you look for that could give you confidence that that is in fact happening rather than just sort of being an anomalous report?

Well, I mean we look at the statistical trends and, as I mentioned earlier, we've got five months of increased occupancy from group, so demand is accelerated beyond the 0.9% supply growth level. We clearly often talk to our operators about their larger properties and the brands, even those that we don't currently work with, and that's where we're really looking for support for the analytical numbers. But I tell you, we get a lot more value out of the analytical -- out of the Smith Travel numbers then any anecdotal evidence.

And I'm curious, just to switch gears, I had seen some headlines around a restructuring of Denihan's senior management effort. Do you expect those changes to have an effect on your relationship or any operating performance?

No. I mean, what was announced I don't think was frankly any different than what exists with Brooke having overall responsibility for the operations. I mean, we deal with both Patrick Denihan and Brooke Barrett for both the partnership and ultimately operational decisions. So I don't see that in and of itself making a difference. I do think that they continue to significantly upgrade the quality of their operating team, and we fully expect that to have very positive benefit on the overall performance of the portfolio.

And just one last question, can you talk a little bit about asset prices in Washington DC? It's clearly been a weak market and one that's expected to remain as such, but is there an opportunity to be contrarian in that market, or is it just not presenting itself at this juncture?

Yes. First of all, there's not much and hasn't been much available here in DC. We don't see sellers rushing out to sell because of where the market is. And from a contrarian perspective, I mean, what little we know about values or expected values in the market, we haven't really seen any change based upon the overall performance, the flattening of performance in the market, and our expectation that the market is likely to be a significant underperformer for it least the next two to three years.

So we haven't seen an opportunity here. We believe strongly in how good a market this is over the long term because of the barriers to entry, and we've been through enough cycles to know that we go through these government pullbacks from time to time and government will then begin to grow again and grow pretty consistently for a significant period of time. So, we continue to be very positive about the DC market, but we don't see a lot of opportunities at this point.

Thanks, guys.

Bill Crow, Raymond James & Associates.

Hi, guys. Two topics this morning. Jon, is there anything you are seeing today that tells you to be a little cautious on guidance on both margins and RevPAR growth versus, or is this just maybe a reaction to last year when we got surprised by the government shutdown, et cetera, and so we are protecting ourselves from what could be out there?

You mean in terms of our cautiousness about not --?

Yes. Not raising guidance given the first quarter beat.

Yes. I think, Bill, from our perspective we've been pretty consistent in talking about the fact that this recovery has been very bumpy, and we set our GDP outlook for this year, I think, below what some more enthusiastic economists were forecasting, maybe even the consensus of the economists, just because we like to see it proven that the economy does finally get some momentum to pick up in terms of growth. There isn't anything that we're seeing that is negative, from any of the more positive things we've seen, really not only in the last three months but maybe the last five months, and so it really does relate to being cautious. I mean, last year we had a great first quarter and then a lot of things happened that we did not see and did not expect, and so that's really where the cautiousness comes from.

Right. And then, Jon, I saw that you're going to do a renovation of the W in Westwood and maybe using that as a symbol of the other renovation repositioning work, et cetera, that you do. It gets great reviews on TripAdvisor; it's one of the top-ranked hotels in the market. Are you too early in -- I know you'd rather be early than late, but does it need capital? What do you expect to get out of the additional capital you're going to put in that property?

Good view there, Bill. I mean, it does do great. We are and always have been a believer all the way back through all my years at LaSalle that we'd rather be a year early than a year late, and we're more than happy to see all of our competitors in our markets be a year or more late in terms of enhancing their properties.

So in the case of the W, we're not doing a complete entire rooms renovation where we're tossing everything out and putting everything new in. It's a mixed soft goods renovation and some bathroom renovation along with a full renovation of the public areas, which really are in need of it. I don't know if they're tired, but there dated. And along with making a new deal ultimately with food and beverage leasee to operate both the indoor and outdoor bars and restaurants, I think we can bring this property up another notch in terms of where it fits into the overall market.

The other opportunity here that we have talked a little bit about is as part of the rooms redo, there is an opportunity to reconfigure rooms on every floor in order to create another 36 keys or more, which in a market with room values of well north of $500,000 or $600,000 a key is very, very valuable, particularly when it's being done through a reconfiguration as opposed to an expansion or full new construction.

So, we think is very significant value add into double-digit millions through the addition of the keys, recognizing the hotel does do well today. It runs in the upper 80s, from an occupancy standpoint, so we do think there is an opportunity to add rooms and have those get absorbed pretty well. The hotel runs north of $300 in a rate while some of his upper end competitors run well into the mid-300s or even to the upper 300s. So, we do think there's an opportunity there to close a little bit of that gap through an upgrading of all the facilities here.

Great. Thanks, guys. Nice quarter.

Wes Golladay, RBC Capital Markets.

Good morning, guys. Very solid quarter. When you look at San Francisco, which is a big market for you guys, it's been extremely strong. Do you think that continues? It looks like we're coming up against some very difficult comps for the balance of the year. Could it still perform double digits in your mind on the RevPAR front?

Yes. I think the year is going to end up in double digits in San Francisco. The economic activity; the corporate activity; the leisure business, both domestic and international, is all very strong and the convention calendar looks great for the year. The weather has been terrific. All things positive which of course always makes us sit back and wonder what are the bad things that are going to happen that we are not seeing. But as of right now everything looks pretty good, Wes. There is pretty much no new supply in the market, and we continue to see very healthy demand growth.

Okay, and then looking at your -- sorry, go ahead.

And there's no fear of raising rates in the market. In fact, when you put San Francisco in perspective to some of the major markets, including New York, I think San Francisco runs about $70 on average below New York, and we think over the next three, four years or more it's going to shrink that differential perhaps very meaningfully.

Okay. And then going to the expense side, your food and beverage margins were extremely strong -- 375 bps on flat to slightly down revenue. You mentioned something about the closing the nonprofitable restaurant and the leasing activity of the restaurant in LA. Will this persist throughout the year to the same magnitude -- the cost savings?

Yes. We think so. The space at the Mondrian is leased. So not only are those margins better but there's additional rental income from the tenant that falls into the other revenue category, which also has enhanced our returns, overall. And those things will continue. We don't see a change right now in Boston in terms of the way food and beverages are provided to the customer. And in San Francisco we'll be reopening the restaurant bar May 1, just next week. And we're looking for that to significantly enhance bottom-line profitability.

That may not improve our margins compared to the first quarter when it was closed, but it's going to improve our profitability, we believe, for the hotel and for the overall portfolio. And as we always talk about, it's all about profit per key and not necessarily about margins.

So, yes, and we do have other outlets that we're working on at different properties, including The National at the Benjamin in New York where we have a solution that we think -- that's been worked out between all of the interested parties including organized labor, the employees, our manager, and the joint venture owner where all of the parties have collaborated to keep the restaurant open through making changes in operations and costs that will after a few one-time costs will basically put that property on a road to full breakeven and eliminate well over $2 million of losses on an annual basis of which half of those are hours.

Okay. And sticking with that joint venture in New York, the portfolio modestly underperformed the broader market. How do you see that portfolio progressing versus the market for the balance of the year?

Yes. As you know we are absorbing additional rooms at the Affinia 50, so we're growing revenues faster than we're growing RevPAR. We believe that with that renovation and the beginnings of its ramp up as we move into the stronger periods of the year and with the improvement at the Manhattan in particular because of the renovation last year, the portfolio is likely to outperform the market for the last three quarters of the year.

Okay, thanks a lot, guys.

Lukas Hartwich, Green Street Advisors.

Thank you. Hey, guys. Jon, I'm just curious, other than New York, are there any markets where pricing is getting closer close to replacement cost?

Well, I think -- outside of New York, you said?

Right.

That's a good question because there some markets where it's a little hard to know what replacement cost is because land costs are moving fairly rapidly, as are some labor costs. San Francisco is a good example of that, where office and residential developers have been rapidly bidding up land in the city. And as a result of that, we're seeing fairly rapid increases in at least what we estimate replacement costs would be, to the tune of north of 10% of a year at this point.

So there's probably some development that could occur in some parts of San Francisco. We believe some of our assets valued at where the market is trading, our assets are worth north of $700,000 or even $800,000 a key. And our sense is that if you can get something approved, you are likely to be able to build at a lower cost than that in some parts of the city. But we're not seeing it, and the city continues to be pretty tough on developers, including residential, which is in short supply in the city.

Do you see that situation kind of changing? There's definitely been some pushback on the San Francisco community kind of fighting development, but then there are also fighting prices going up for everything. So how do you see that kind of playing out?

Well, I think pricing for real estate is going to go up until they start letting real estate get developed. I mean, it's just supply and demand. So, you can't really have it both ways unless you want to live in a fully regulated environment, and so our view right now is that part of the reason, obviously, land is going up so quickly is because there is limited sites where the city is willing to allow development to occur. And even then, where deals with the made with the city, some of the more aggressive groups -- anti-development groups in the city have caused those developments to get put to a referendum and they've been rejected.

I mean take a look at the development of the Warriors center. They want to move from Oakland to San Francisco. They've been working for four or five years already on a site that is city owned along the piers. And they've gotten to the point, because of the neighborhood opposition, that they're just abandoning that and they're moving down to a site in China Basin that they think is more easily developable.

So, I don't know how it ultimately all plays out other than if you're an existing owner in the market with very high barriers to entry where people don't want to see development occur, there isn't a better place to be as an owner.

Right. Either any other markets where we're getting closer?

Well, certainly, select service in some other markets. You are seeing some development in Boston. It's primarily down by the Convention Center, which is where the most available land is. Whether values down in that area are higher or lower than those development costs, we are not really sure. I would think that other markets -- you're going to begin to see development, obviously, and we are seeing it in markets like Chicago, Austin, Nashville, Houston, where I suspect in those markets assets are trading above replacement costs. And that's why you're seeing such a large amount of capital flow into those markets to develop new properties.

That's very helpful. Thank you.

(Operator Instructions) Andrew Didora, Bank of America.

Hi. Good morning, everyone. A lot of my questions have been answered, but, Jon, I just wanted to maybe talk a little bit about the bigger picture. What we're seeing out there -- obviously continued strength on the transient side. You're saying that group is finally coming back, and that's based on what we've been seen out there in the transaction environments -- more of the deals are going to private buyers. I guess when you think about all of these factors coming together, where do you think the industry is relative to the overall cycle growth right now?

Well, I think we're at a pretty healthy point right now. We have demand that's significantly exceeding supply growth. Supply growth takes time to deliver. The ramp up we're seeing is actually slower than what we've predicting -- we had been predicting. You know, last year it ended up below are forecast from a supply growth perspective.

This year I daresay in a month or two we may bring our supply growth forecast down for the year, for the industry. It was 1.2 to 1.4. I'm not sure how you get to 1.4 at this point without a fairly dramatic escalation, which -- it is really not physical possible physically possible. In fact we're almost looking -- I'd say we're probably three months away from having a pretty strong view on what 2015 supply growth looks like, and, again, based upon what we've been saying in starts, we think is likely to be less than what we were thinking six months ago for 2015.

So capital, while becoming increasingly available certainly from a development perspective, is still difficult in most places. It should be more difficult in places like New York where I think the market is going to struggle for many years to come and be an underperformer. And I think from an acquisition perspective, what we've always said is that we're happy to kind of seed the market to the levered -- the high-levered buyers in the second half of the cycle where we've been successful in the first half of the cycle.

So, I do think as we indicated earlier in the year, our success rate, our hit rate on assets that we've aggressively pursued has come down significantly from the early years of Pebblebrook, and it's primarily a result of two things. One is the levered buyers today and perhaps even a few of our public brethren who have gotten aggressive to get into certain markets strategically, and then, two, there is -- we've sort of worked our way through the need to sell. And we've gotten to a point where people do look out -- existing owners do look another couple of years, this year and next year, and say, wow, it looks pretty good for those two years. Why should I be in a hurry to sell if I don't need to?

So, we're seeing fewer quality assets in our target markets, as well as for us our target market list has shrunk significantly since we went public, and then even of our target markets, we think values are well above what we're willing to pay, based upon our three to five-year outlooks for those markets. And so we're not competitive in some of those markets.

That's great. That's it for me. Thank you.

Wes Golladay, RBC Capital Markets.

A quick follow-up question. Sticking with the acquisitions, would it be time for dispositions? Or are we in the hold phase right now?

I mean, we're definitely primarily in the hold phase. I mean, there's no big reason to be selling in West Coast markets today, for us. We have a number of assets where we're creating value through our renovation and repositioning efforts and the ramp-up of those assets, and there's certainly no reason to abandon those high-growth assets. But I do think as we have indicated, we're likely to sell our first asset at some point this year for perhaps either assets where we think we've added the value or because from our perspective we'd rather, frankly, be more heavily weighted on the West Coast than the East Coast, and so you may see us do something with some of our assets on the East Coast over time.

All right. Thanks for taking the follow-up.

(Operator Instructions) And there are no further questions. I'd like to turn the conference back over to Jon Bortz for any additional or closing remarks.

Thanks very much, operator, and thank you all for listening. Enjoy the sunshine out there.

And that concludes today's teleconference. Thank you for your participation.